The world economy is in crisis, and the only thing we now produce more of seems to be new explanations for why the crisis arose. Is the crisis one of deregulation, corruption in the financial markets, the failure of incentives, or speculation? Should we seek the answer in financial innovations, misguided housing policies, or mismanaged monetary policy?

The cause of the crisis is obviously complex, but the single most important explanation for the problems that the world economy faces today is that both citizens and the state have borrowed too much; it is at least the most important direct explanation. There is also an indirect explanation that deserves to be addressed, namely the weakening of standards related to the moral character of economics.

The usual explanation is that the problems arose because American politicians in various ways encouraged – and sometimes even forced – the banks to give mortgages to people who otherwise would not have qualified for loans. The conditions for a housing bubble, followed by a crisis, to occur were created by a deliberate policy. But we also think weakened standards on accountability have contributed to the public’s tendency to borrow excessively. Considering how bad the U.S. housing market has functioned in recent times, it may be easy to forget how well it worked historically. The normal requirement was for a deposit of 20 percent of the purchase price and amortisation.

Banks demanded a good credit history to lend money. Despite (or perhaps because of) the strict requirements, households managed. Most families who wanted to managed to buy a house. Personal bankruptcies were rare, and accounted for only about one percent of all mortgages. That changed in the 1990s, when a more irresponsible behaviour took over. Requirements for deposits fell to almost nothing, and it became common to not pay off the capital sum. U.S. mortgages were not as safe an investment for finance companies in 2007 as they were in 1967, as many Americans’ behaviour had changed.

Standards affect both private financial- and civic responsibility. Similarly, the U.S. state’s finances have become increasingly weak, even though the country for a hundred years was the world’s safest investment. A lack of accountability in America’s public sector has led to spiralling debt. It’s not just in the U.S. that voters have given priority to short-term self-interest over social responsibility, and the same phenomenon has occurred in southern Europe.

The countries whose governments have been the most irresponsible, and where the crisis is worst – Greece, Portugal, Spain and Italy – are characterised by higher corruption, poorly functioning political systems and weaker standards of good character than countries in northern Europe. The recession also affected the Protestant countries of the North, but it is in southern Europe that the deficit has skyrocketed. Max Weber would not have been surprised over the map of European countries with mismanaged economies. The demarcation between countries with a Protestant tradition and the Catholic countries suggests that historical standards play an important role in the crisis.

Social scientists usually do not study the standards and moral values ??that are important for the economy. The reason is that such standards are difficult to measure and influence through policy. But just because something is difficult to study, or immediately change through the next budget bill, it does not mean that it is unimportant. In fact, there is little evidence that standards affect the whole of our societal structure. In the long run, standards are affected by the policies implemented. An important example is the generous welfare state’s effects on the morality of employment and benefits. Standards are informal rules for our behaviour, both in relation to other people and in the constant internal struggle that we have with our own ‘weak’ side.

They are important to both to our private and societal economies work. The work ethic makes us look for jobs instead of sitting at home and taking from others, and it drives us to be skilled and responsible in the workplace. The work ethic has, of course, not occurred in a vacuum, or by chance. The leading Swedish economist Assar Lindbeck has noted that the unusually strong Swedish work ethic has, over time, developed in a society where it was obvious to almost everyone that they must work hard to achieve a good life.

Strong standards of work and responsibility made it possible for Sweden to introduce an unusually large welfare state. The standards of labour led to Swedes continuing to work despite high taxes, while the standards of responsibility created an overexploited welfare system. As the Swedes got used to high taxes and generous welfare, however, the standards slowly changed.

The effect is clear enough to be able to be measured by researchers, including the World Value Survey – a global study of standards and attitudes that is repeated every few years. Studies show that the proportion of Swedes who believe that it is never justified to over exploit the welfare system has fallen. Only in recent years, when a conscious debate has raised questions about the abuse of welfare, and when both the tax and welfare systems have been reformed, has this trend begun to turn.

Still, however, Sweden is much higher than countries such as Greece. Nearly two-thirds of Swedes think that abuse of grants and public benefits can never be justified; only a quarter of Greeks share that view. It is probably not a coincidence that a well-functioning welfare state such as in Sweden has never been built in Greece, despite the long-standing leftist political sympathies of the country. The unique Scandinavian welfare model has long been dependent on the Scandinavians uniquely strong standards. In countries where the informal institutions are less strong, welfare states that are formally at least as extensive as those in Scandinavia lead to significantly worse outcomes.

Historically, American politicians represented another strong standard, which is to take responsibility for economic policy. A lack of accountability in public finances has occurred, but this has been unusual in peacetime, and was punished by the voters. Politicians like George W. Bush and Barack Obama have in recent years violated the tradition about fiscal conservatism that the Treasury should not be operate with deficit spending. Both Bush and Obama have talked about reform and accountability, but have chosen the easy way to finance expenditure through borrowing. The voters have accepted and even rewarded this policy in ways that previous generations probably would not have.

The U.S. has long had a deficit in public spending, but it has been small, and the rapid growth in the economy has meant that the debt as a share of the country’s economy has not increased. Just a decade ago, the national debt was not more than 35 percent of GDP. During Bush’s eight years in power it increased to 54 percent, and after four years of Obama it is about to pass 100 percent.

Voters and politicians in the past have been able to make difficult choices to either limit spending or to fund it with higher taxes for the middle class; but in recent years they have consistently refused to do this. If tax increases are proposed, these are usually populist proposals on taxes for the rich, which are insufficient to pay even a tenth of the deficit. The general public has, at least until recently, played with the idea that they do not need to take responsibility.

The American public has historically demonstrated a clear rejection of extravagance. Households saved an average of about one-tenth of their disposable income during the 1950s, 60s, and 70s – a high level for a mature economy. The generation that went through the Great Depression was particularly frugal. But in 2007, the year before the financial crisis, the average household saving fell to only two percent.

The standard textbooks of economics could explain these changes in individuals’ behaviour by changing incentives, new formal institutions and fluctuations in relative prices; surely this accounts for part of the explanation. But we suspect that changing standards is also critical.

One way of defining standards in the terminology of national economics is as imprinted preferences. Moral values ??for how we should behave in society are taught by the family, the school and the surrounding environment. Often, neither those who teach nor especially those who accept these standards are aware of the process. Standards work by us getting a psychological reward for conscientious behaviour (such as saving, work or exercise) and psychological punishment for destructive acts (such as eating junk food, contamination, or deception). An important aspect of the learned standards is to exercise self-control.

Psychologists have shown that humans do not have perfect self-control. Many people eat unhealthy food that they should not eat, drink too much alcohol, postpone hard work and save too little for the future. The majority of people recognise that they are unable to save as much as they would like. Standards are a way of dealing with problems of self-control. A person with strong standards works and therefore saves more than those who are only controlled by short-term pleasures.

Another aspect of standards concerns the relationship to other individuals. Standards make us behave decently in relation to others, and therefore increase confidence in the community. Because of strong standards, it makes sense not to deceive others even if you can get away with it, because the fraud is punished by a bad conscience. The link to the standards in the political sphere is clear. Selfish people vote just based on what benefits their own wallet, according to public choice theory. That is not the vote, however, of voters in well-functioning democracies. Instead, voting behaviour is explained by a combination of the selfishness and responsibility of citizens.

To even get involved in politics and to vote in every election is simply explained by imprinted standards of democratic citizenship than by selfishness. This becomes obvious when we consider that each vote has almost zero chance of influencing the actual outcome of elections in countries with millions of voters. A selfish person would never spend an afternoon to go and vote.

Another interesting phenomenon that can be explained by such standards is the relationship between age and perception of financial deficit. Basic economic theory predicts that the elderly should care the least about the deficit in the state budget; they will surely not live long enough to pay back those loans, but in fact the opposite is true. In both Sweden and the United States it is the elderly that is most likely to believe that the surplus in the state budget should be used to pay off the national debt, in contrast to younger citizens, who would rather use the money for tax cuts or higher spending.

Older Swedes, who grew up in easier circumstances with stronger standards, disapprove of loans. They want to take responsibility for the future, even the future that they themselves will not experience. Again, it is difficult to measure standards, and researchers do not have sufficient resources or capability to do so, but much indicates that this form of long-term responsibility has declined in the U.S. recently. This may, in interaction with the usual economic theory, be an explanation for both the financial crisis of 2008 and the new crisis that this lack of trust is creating for different states.

It is not only in Sweden and the United States that we can discern a relationship between standards and economic behaviour in connection with, and after, the financial crisis. In Europe, we can see that the Baltic economies – which were hit very hard by the crisis because it struck when they were growing rapidly with the help of foreign investment – have made an unexpectedly strong recovery by tightening their belts and making tough decisions, rather than by passing their problems on to other EU members.

We also see that Germany, where the politicians have focused on increased accountability of public resources, has avoided the trap in which the U.S. is stuck. The comparison is interesting, as the German national debt before the financial crisis was as great as the U.S.’s, and because the country’s economy actually shrank more than the U.S.’s during the crisis. Sweden, whose policy has focused on accountability in public finances and the primacy of work principle, has also fared exceptionally well.

Among the European countries that are experiencing major problems with borrowing and deficit is Great Britain, where similar political developments to those in the U.S. appear to have occurred, and where the new government is making substantial cuts. We also find that southern European countries are characterised by lower trust and weaker standards on individual and political accountability than other parts of Europe. One can strongly argue that weak standards have played a crucial role in southern Europe’s problems.

Greece, Italy, Spain and Portugal are high in the international rankings of corruption and tax evasion. Similarly, benefit fraud is a major problem in these countries. Trust is not the norm, but how much we put trust in strangers is strongly linked to how reliable they are, which in turn relates to how strong their standards are. In an international index of faith and trust in strangers, the Nordic region ranks three times higher than the Southern European countries, and Germany twice as high. Most macro-economic analysis of Greece’s problems focuses on formal institutions and policies. But a comparison between Greece and Sweden highlights the importance of informal institutions, such as these standards.

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Greece and Sweden are, in a formal way, quite similar, despite the very different outcomes. The tax structure and tax rates are remarkably similar, with many taxes and high tax rates in both countries. The difference is that Swedes pay almost all their taxes, while Greece ranks in fourth place in the OECD in terms of the black market’s relative importance.

While the black market is estimated to be 7 percent of the Swedish economy, the OECD estimates that it is 24 percent of the Greek. This means the Greek welfare state exists in a constant loss of revenue.

The level of corruption is sky-high in Greece. Patients still need to give ‘gifts’ to doctors, even though healthcare, by law, should be publicly funded. Corruption among government employees reduces tax revenues and increases the waste of public money. Morality concerning benefits is weak, and thus is frequently abused. The political system does not work, and has little legitimacy. The problems are postponed and avoided more than in other EU member-states.

In the United States today, there exists a clear awareness of the crisis among both the public and the politicians, who are trying to regain the voters’ trust. It is likely this development will be similar to that in Britain, where the unpopular but necessary reforms are now being implemented to solve the problems. Or, as in Canada, which was marked by widespread problems with runaway government spending twenty years ago. Canadian voters and politicians realised that it was time to put accountability first. Since then, they have been able to significantly reduce the loans, balance the national budget and gradually reduce the tax burden.

Canada’s experience is actually fairly similar to that of Sweden. The public accepted that all the cuts were needed after the 1990s crisis, and politicians prioritised the necessary growth reforms instead of just trying to borrow. In both countries, both the political left and the political right demonstrated after the crisis an understanding of how to return to stable government finances. It remains for the U.S. and Britain to walk the same path towards greater accountability as Sweden and Canada have done. There are irresponsible elements in these countries, such as high-ranking American politicians who try to play down the problem as being about symbolic issues such as the deductions billionaires get for their private jet plane fuel, or about young Britons who riot in aggressive demonstrations against cuts.

But overall, the public and politicians have shown that they can be responsible. The sense of responsibility for the crisis is not as strong in southern Europe, least of all in Greece. Certainly there are those who understand the need to adapt to reality, but many ordinary voters are opposed to any cuts that would affect them, while many among the political elite want to maintain or even increase spending; someone else has to pay, and that ‘someone else’ is the other members of the EU, notably the EMU countries.

A deep political divide is emerging between well-behaved countries such as Sweden, Finland and Germany, and irresponsible members of the EU, especially in Greece. The reason for this is that both politicians and the public in other European countries react to the lack of responsibility and willingness to unload the problems onto other EU countries. We accept doing the right thing and behaving selflessly, as long as we believe that most others are playing fair. Nobody wants to be exploited by those who play foul. Standards would be diluted if it pays to cheat. Despite everything, standards are about making the right decisions in situations with complex choices. Following a tradition or rule of thumb, we use information that has been built up by many others over long periods as the basis for decisions, rather than reinventing the wheel on each occasion.

Chinese medieval peasants did not understand genetics, but followed the rule of saving the best seed to plant next year. A more modern example of such a standard may be the rule not to borrow for current expenses. Anyone who has had this standard ingrained as a child takes out fewer loans and does not vote for irresponsible politicians.